Skip to main content

Bidding wars are the new normal for buying a home today. In desirable areas, there may be multiple offers, which might force you to up the ante in a dizzying quest to come out on top.

Yet in the heat of the moment, many buyers run the risk of becoming overzealous, making mistakes that cost them the deal—or worse, land them with a house they regret. Don’t be one of them!

Here are some common bidding war mistakes you might be particularly tempted to make in today’s crazy market, along with some smarter, saner alternatives to try.

1. Bidding every last penny you have

“The market in Seattle is so competitive these days that houses go for tens of thousands of dollars above the list price,” says Lily Lei, an agent with RSVP Real Estate, Powered by ERA, in Seattle. “I’ve had buyers who want to bid all the money in their budget in order to win a bidding war, and I counsel them away from it.”

Why?

“The house may require tens of thousands of dollars worth of repairs immediately, like a new roof or new plumbing,” Lei continues. “They would have no money left to cover these essential repairs.”

In a heated market, “the appraisal may come in low,” she says. This means the bank’s appraisal says the home is worth less than what you’ve agreed to pay for it.

“Then you’d need a higher down payment to make up the difference,” Lei explains.

What to do instead: “Unless my clients have families who can give them the extra funds, I advise them to hold back 10% to 40% beyond what they can actually afford,” says Lei. “If it’s a young couple who are out on their own, for example, and they have no other financial resources, I tell them, ‘Maybe this is just not the house for you. There will be others.’”

2. Bidding with many contingencies

“You should never get involved in a bidding war before your financing is in place and you know exactly where your money is coming from,” says Glenn Raynes, a Las Vegas real estate investor who has been involved in numerous bidding wars and won most of them.

He especially advises against having your offer be contingent upon the sale of your current house.

“The seller will always pick the bid with the fewest uncertainties,” says Raynes. He recalls that he once won a bidding war on a Huntington Beach home with the third-highest offer it received. The reason? He was an all-cash buyer, which meant a quick and seamless closing.

What to do instead: Most of us aren’t in a position to offer cash, but we can get pre-approved by a lender before we go into the bidding war. We can also make sure the sale of our current house doesn’t enter into the deal. You could sell and then rent prior to bidding on a new house—or possibly sell and request a lease-back agreement from the new owner.

“It’s seldom all about price,” says Raynes. “Find out what else is important to the seller and try to accommodate that better than anyone else.”

3. Bidding with no contingencies

Jared Blank and Kacey Bingham, managing partners of The Agency in Denver, have seen buyers get so excited while bidding that they release all contingencies. That includes waiving the right to a home inspection and the ability to back out of the deal if an inspection reveals major flaws.

What to do instead: “If buyers want to be competitive in this market, they need to compromise on a lot of things,” says Blank. But the inspection is not one of them. If you win the bid on a house that’s crumbling and you can’t back out, it’s no win at all.

Instead, bid as high as you can comfortably afford, and make compromises on things like the length of escrow and down payment. But never, ever sacrifice the right to inspection as a negotiation point.

4. Assuming you’ll get a second chance

“Here in the Chicagoland area, bidding wars just won’t quit,” notes Janice Corley, founder and CEO of Re/Max Collection Premier by Janice Corley, a Chicago-based real estate brokerage. “Very often, we see hopeful buyers lose out on their second chance.”

Prospective buyers think they’ll have more chances to raise their bid if needed, and they are often wrong about that, Corley explains.

What to do instead: “If you find yourself in a multiple-bid situation, I recommend writing your bid as if you will not have a second chance to negotiate,” Corley advises. Consider it one and done!

5. Using the term ‘best and final offer’

You see people using this term on real estate reality TV shows. (Translation: “Negotiation is done, and I’m not offering you one penny or concession more.”) But what works on TV doesn’t always work in real life.

In a bidding war, negotiations are never over until the seller is ready to throw in the towel.

“Never use the term ‘best and final’ because it usually isn’t the case,” according to Todd Miller at The Agency New Canaan, CT. “Once you use this term, the listing broker will not take you seriously if you actually counteroffer again.”

“There are other important negotiable things that the seller will probably take into consideration,” adds Cliff Smith, also at The Agency in New Canaan. “These include the closing date, a larger down payment, or potentially removing a contingency, etc. If the seller sees the term ‘best and final,’ they may not come back to your bid to see about altering any terms other than price to make the deal work. Instead, they may choose another offer.”

What to do instead: Even if you’ve bid as much as you can possibly afford, never tell the sellers that. They might take you at your word and cut you from the herd. There might be other contingencies you might be able to handle, like a few months of leasing the property back to the seller at a reasonable price. Sometimes sellers aren’t ready to move yet.

6. Using an escalation clause

An escalation clause automatically increases your purchase offer by a certain amount above all competing offers. This continues until the price reaches the maximum price you’ve determined you’re willing to pay for the home. In other words, you bid $500,000 on a house and write an escalation clause that tops the highest bid by $5,000, until the price reaches $550,000.

“Our agents are not big fans of escalation clauses,” says Don Mastroianni of The Agency North Shore Long Island.

This clause puts the bidding beyond your or your agent’s control. Also, it doesn’t take into consideration valuable contingencies beyond price that you or other bidders might be willing to add.

What to do instead: “We recommend clients give a very strong offer right from the start to be able to stand out from the competition,” says Mastroianni.

Make a strong entrance with a high bid, and you’ll never be forgotten.

7. Not knowing a home’s true value

Some buyers are hesitant to offer above the asking price in a bidding war, thinking that the home is not worth more than that. What they don’t realize is that sellers often intentionally price their home slightly below its true value to get a bidding war going and have potential buyers drive the price much higher in the heat of competition.

Meredith Schlosser of Berkshire Hathaway HomeServices, Brentwood, CA, notes that buyers are less likely to win a bidding war if they “won’t step up to their highest price. Instead, they choose to believe the property is worth less.” As a result, they lose the house.

What to do instead: Refer to “numbers and proven stats that take into consideration the lack of inventory, market trends, how much the price of properties have increased in certain areas over time,” suggests Schlosser. “This will give you a better understanding of what the property is worth.”

Source: Realtor.com, Lisa Johnson Mandell

Every house hunt starts with a dream, one that can easily escalate into pure fantasy. Homebuyers, particularly first-timers, often harbor visions of purchasing the perfect house, in a great neighborhood, for a bargain price.

All that might have been achievable—with some luck—in the past. But in today’s hot seller’s market, once buyers move beyond mooning over listings to making an actual offer, things can get jarringly real all too fast.

As a real estate agent, I see this wake-up call regularly. So do my colleagues.

Peter Cantine, a real estate agent in the Catskills where I live, says many of his clients want “a house with seclusion, views, and a water feature,” for a budget of about $300,000.

“In this market, $300,000 will get you a hammock—just the hammock,” he says. “Want a hammock that sleeps two? That’s 400,000!”

Jokes aside, we’re not here to discourage you from house hunting, and we’re certainly not angling to dash real estate #goals. We simply want to help homebuyers succeed by pointing out certain overblown expectations we see consistently in our line of work.

Here are a few homebuying dreams that may need a reality check today.

1. Your dream home will have everything you want

With historically low inventory, the so-called perfect home—if and when it does come on the market—has so many buyers lined up that, even if it started at a “great price,” it will most likely go into a bidding war. So that means it won’t be perfect after all, right?

Having an open mind is key: It’s understandable that you want to avoid a gut renovation or a long commute to work, but a willingness to make cosmetic changes or drive even 10 minutes farther than planned will substantially help your cause.

2. There’s time to find a mortgage after you find the house

While house hunting can be fun, finding a mortgage feels more like a chore. Still, if you save the financing step until after you’ve found the perfect home, there’s nary a chance the home will still be available by the time your loan paperwork comes through.

“Your first call when even thinking about maybe purchasing should be your bank,” says Haden Riggs, a Keller Williams agent and team leader in Tyler, TX. “They will line everything out and put you in the best position to purchase.” 

There are many important reasons why you need to have your mortgage pre-approval before making your first viewing appointment. One, it gives you a guidepost: You might qualify for a larger loan than you thought you would, or in some cases, less. Also, due to COVID-19, many markets have made buyer financial statements a requirement to schedule a showing—and this trend is likely to continue, as it helps sellers separate the looky-loos from the serious buyers.

“If an agent shows you properties without a pre-approval, they probably aren’t the best agent,” says Riggs. 

And what happens if you’re just window-shopping, then find a home that checks all your boxes, and you want to make an offer immediately? You can’t submit a competitive offer without your proof of funds.

Because interest rates are so low right now, even cash buyers should consider obtaining a pre-qualification just in case they fall in love with a home that exceeds their liquid budget. It’s so easy to call your banker and secure one on the phone in less than an hour.

3. You can handle the homebuying process on your own

Thanks to the internet, you can do preliminary sleuthing without a real estate agent, and it’s a great way to educate yourself about the market where you’re searching. But beware: There’s no substitute for an agent’s training, guidance, and experience. 

The fact is, a local real estate agent can more accurately assert what constitutes a “good deal,” and can speak to factors like location a lot more confidently than a homebuyer. Real estate agents also have access to crucial notes shared on the multiple listing service, including need-to-know issues such as “This property is located on a flood plain” or “Price reflects that the home needs a new roof.”

4. The seller will fix any issues that come up in the home inspection

Traditionally, a house-proud seller will be more inclined to remediate most problems. But in a seller’s market—which is still most of the country right now—not so much, especially when sellers have backup offers and buyers willing to waive the inspection altogether.

So be realistic. If there are major structural issues, evidence of radon or mold, or serious plumbing problems, you may be able to negotiate the price, but not always. 

Take heart: While an inspection is meant to shed light on any and all maintenance issues and real or potential defects, many of the smaller “flags” will likely be forgotten once you move in. Expecting a seller in a competitive market to address every line item is a delusion that could cost you the house.

5. The asking price is probably what you’ll pay

The prevalence of bidding wars over the past few years has resulted in a reverse pricing strategy that can be frustrating for real estate agents and buyers alike.

In order to maximize interest in a property, many seller’s agents have employed a “bargain basement” starting price in anticipation of a bidding war driving up the price.

In some markets, it climbs way up. In high-demand areas across the nation, $100,000 to $200,000 above the list price is not unusual. If the cost for a beautifully renovated, spacious home in a fantastic location seems too good to be true, chances are it is a delusion.

6. Can’t find the right house? It’s easy to build one instead

The real estate market is challenging homebuyers across the United States. Many real estate agents are seeing client interest in land purchases with the belief that building a home from scratch will somehow be less painful than slogging through the listings and surviving bidding wars. It’s a lovely fantasy, but make sure to do your homework.

“If you have all the time in the world and the patience of a Tibetan monk, building is for you,” says Riggs.

But beware: Many building materials are back-ordered due to supply chain disruptions, and priced at all-time highs. There’s a general labor shortage across much of the U.S. Plus, depending on the parcel, you’ll have to hire professionals to conduct tests to determine if you can build on the land, and you may need to add infrastructure for electricity and septic systems, for starters. The costs can be astronomical, and the process could take many months. Here’s more on how long it takes to build a house.

Source: Erin Flaherty

We use cookies and tracking technology in connection with your activities on our website. By viewing and using our website, you consent to our use of cookies and tracking technology in accordance with our Privacy Policy.